Life Strategy Vanguard Funds

[jwp]

I've been looking at Vanguard's LifeStrategy Conservative Grouth Fund and also their LifeStrategy Income Fund. *I see that they are well diversified. *My thought is to split my nestegg in them equally and take withdraws as needed when I retire at 59.5 years old. The return, 8% since inception is OK with me, I could even live with a lower amount. *I'll have a million $ to invest.

Anyone have a thought on this?


[moved to investment strategies forum -- Dory36]

[MRGALT2U]

I think your Vanguard ideas are pretty good, but I will
give you another reason why I avoid common stocks
entirely. Our investment options are overwhelming.
The possibilities endless. In my case, by eliminating
common stock completely. it cut down on the choices
and "cleared the air", so to speak. I have always believed
that too much input leads to confusion and paralysis.
Anyway, re. stocks, I don't need 'em and I don't want 'em. I got here (early retirement) without relying on common stock
investing, and I will depart "on the horse I rode in on".

[Ted]

On May 11, I made a post in the "other topics" category about John Bogle, who founded Vanguard and still provides general investment advice at the "Bogle Center" link on Vanguard's website. His advice is independent of Vanguard's and somewhat different.

Given a choice of investment advice ranging from John Bogle's to John Galt's, I think that John Bogle's is more appropriate for anyone who expects to be around for more than a year or so. (John Bogle obviously expects to be in spite of having had a heart transplant!) I have followed the same investment principles that he advocates for the past 15 years with considerable success.

[MRGALT2U]

Re. John Bogle's advice, I have no problem.
Everyone has to decide for themselves, in the end.
My wife and I do not count on being alive at this time
tomorrow. Obviously, this has a major impact on our
views of life, investments, planning, etc.

[haha]

The comments by Ted and John Galt illustrate well one of the problems of relying on internet boards and discussion groups, as opposed to using internet for ideas to be confirmed or rejected by other investigation.

What John Galt and Ted said, although apparently opposed, could both be true. It is also possible that going forward, both could fail, depending on a lot of things that they haven't shared with us, and a lot of other things that are not yet part of history. For example, plug in a portfolio 100% fixed income into the Fire calculator, take out $40,000 per year, and start with $5,000,000. No problemo! And more than a few people have $5,000,000, or need less than $40,000. So it seems unwise to dismiss out of hand the possible appeal and sufficiency of the all fixed income option. Since the Fire Calculator gives 100% probability of this portfolio succeeding 30 years, the principle of safety over final portfolio value would at least recommend a close look at this fixed income option.

As to Ted’s statement that he has followed Bogle’s ideas with success for 15 years, to me it is interesting, suggestive, but no sort of proof that that will be a good strategy going forward. Imagine a Japanese retiree in 1989, saying “ I have done extremely well over the past 15 years in the Japanese stock market, so I will keep my retirement funds there”. Good plan based on experience, bad plan as it would have worked out.

Even the calculators, conservative as they seem, are not necessarily so. To start in 1871, and take consecutive overlapping annual returns summed for 30 years, gives 111 runs, but in that data-set there are only 4 independent 30 year trials.

And we have the survivor bias to deal with. What if we were French? Or German? Or Japanese, or We would have seen many complete wipeouts. I am not sure, but it is likely that the US and Britain are the only possible winners over these very long periods. But are we the same nation, occupying the same world position today as we were in 1871?

Ok you might say, use one of the Monte Carlo simulators. Again, no cigar. Because the parameters we take from the historical US experience suffer from many of the same problems as noted above for Fire-Calc.

In fact, it may be that the only real solid argument for equities comes from financial theory, the EMH, and CAPM. Historically and for reasonable theoretical reasons, short to medium term fixed income has just about preserved capital, before taxes. Taking risks should give us more.

Many of these points may or may not matter going forward. But I sometimes get the feeling that some Fire oriented discussion tends a little toward very precise but quite possibly wrong answers. We should probably think a lot more about the conditions assumed by these many calculators before we place too much faith in them.

I believe it remains true that the best strategy is to start with more money. Alas that requires more work. If we were interested in that, we might not be reading these boards!

Typographical note: I have given up trying to work around this very odd transform done by the auto-editor. Apparently it doesn't like apostrophes, or quote marks.

Mikey

[MRGALT2U]

Hey Mikey! Good stuff as usual. Re. "I believe the best strategy is to start with more money", I agree of course.
Good way to put it. I may be an exception, or maybe
not...................once I decided I could do it (even though
on a shoestring) I jumped. Then I worked part time awhile and had some luck. Anyway, I never did any real serious planning until after I had retired. Sounds
ridiculous I know. I think it may be that it took me a long
time to wind myself down from my former lifestyle which
was 180 degrees from my present situation. In other
words, although I did some number crunching, it was
mostly an emotional decision. Truly, I am very fortunate
that I was able to fully retire when I did.

[RedOscar]

Quote:

Anyone have a thought on this?

I think the suitability of blended funds is OK if you do not plan on making systematic investments or withdrawals. Just let it ride and let the fund company do the rebalancing.

However, if you intend on making regular withdrawals, perhaps you would be better served by investing in only pure stock or bond index funds. That way you could sell those assets that are appreciating in value, while avoiding to sell those assets that are going through a "bear market". Just gives you a little more control and keeps you from mixing apples and oranges.

Red

[Ted]

In previous posts, I have noted the same cautions as Mikey about blindly projecting the past performance of U.S. markets into the future. What I and people like John Bogle advocate is to recognize the impossibility of predicting how any one asset class will perform in the foreseeable future, and to compensate for this by following the principles of asset diversification and portfolio rebalancing.

What this has always done, and can be expected to do in the future, is to reduce the volatility of a person's total portfolio for a given expected rate of return.

When a person is working and contributing to their portfolio, volatility is usually not all that much of a problem -- provided they don't shift all of their assets into market bubbles of the type that developed during the late 1990's. (They would not have if they had followed Vanguard's advice at the time.) But once a person retires and needs to draw down assets, volatility can become much more of a problem -- particularly if one considers the volatility in real rates of return that can be generated by increased inflation.

How this relates to the original post by JWP is this: I agree with RedOscar that it should be possible to obtain a little better control over volatility by investing in stock index funds and bond index funds rather than blended funds. An added way of achieving more diversification (and thereby presumably lowering portfolio volatility further) would be to invest in funds (such as other funds of Vanguard's) that hold TIPs, high-yield bonds, and REIT's. Except for a small exposure to REIT's, these asset classes are apparently not included in Vanguard's LifeStrategy Funds.

[haha]

"What I and people like John Bogle advocate is to recognize the impossibility of predicting how any one asset class will perform in the foreseeable future, and to compensate for this by following the principles of asset diversification and portfolio rebalancing.
What this has always done, and can be expected to do in the future, is to reduce the volatility of a person's total portfolio for a given expected rate of return"-Ted

Very well put, Ted. I would add that it pays to put particular emphasis on asset classes being as uncorrelated as possible. Again, this is easier said than done, because asset classes don't have fixed, unvarying correlations.

Mikey

[dory36]

Quote:

’ “ ” etc... Typographical note: I have given up trying to work around this very odd transform done by the auto-editor. Apparently it doesn't like apostrophes, or quote marks. Mikey

I am guessing you are composing your messages in MS Word, and cutting and pasting into the forum. I'm also guessing that you have Word configured to replace straight quotes with "smart" quotes -- the ones that lean one way or another. Word has a few other characters it will substitute for the characters you type.

MS Word uses unassigned codes for these characters, which means that only MS Word knows what to do with them.

In addition, there are many codes that mean one thing if the screen is set up for English, and something else if it's set up for another language. These codes, while assigned, have no direct correspondence from language to language.

I've bumped into both problems myself; a "bullet" becomes a Yen symbol, an em-dash becomes a raw keycode.

For better or worse, the forum software doesn't try to guess whether it is a Japanese Yen symbol or a smart quote -- it just sends the nonstandard characters as raw keycodes.

There seems to be no way to get this forum software to handle these nonstandard characters better, without starting a whole new career in rewriting the forum software. Not in my plan! All I can suggest is to watch out when you copy from other applications, when those other applications automatically change your typed-in characters to something else, as MS Word will do.

Dory36 :-/

[haha]

Dory, You are right, I am pasting from MS Word. Maybe I will try reverting to pure text before pasting into the Forum. Thanx,

Mikey

[Ted]

A couple more thoughts on the original subject of Vanguard's Life Strategy Funds. They are "very good" in the sense that they have very low expenses and provide good diversification among stocks and bonds.

I think that the people who can benefit the most from these funds are those who have rather modest assets and prefer to "invest and forget" them. For most people, this is a better approach than attempting to "manage" their investments -- especially with the "encouragement" of some "financial professional" trying to sell them the latest "hot" investment product.

If a person has substantial assets, however, and is willing to perform "rebalancing" every six months to a year, then they have a chance to modestly improve the performance of their portfolio by investing in various classes of assets through low-cost mutual funds, or by owning a diverse selection of stocks and/or bonds directly. They might even try to "beat the market" with a portion (say, 5% to 15%) of their investments.

Also, there is a slight "extra" advantage (in low expenses) to be gained by investing in Vanguard's "Admiral" funds, which require a high minimum investment (over $100,000). The "Life Strategy" funds are not included in the Admiral class.

Note: I'm not affiliated with Vanguard, but have had a substantial part of my own investments in their funds for over 15 years and have been very satisfied with the company.